Introduction
This case commentary examines the decision of the Income Tax Appellate Tribunal (ITAT), Chandigarh Bench, in ITA No.117/CHANDI/2026 and ITA No.156/CHANDI/2026, involving Shri Om Prakash Bansal Educational & Social Welfare Trust versus CIT (Exemptions), Chandigarh. The assessee, a trust running several educational institutions including the World University of Design, had its registration under Section 12AB(4) of the Income Tax Act cancelled by the CIT(E) vide order dated 16.12.2025. The registration had been originally granted on 24.09.2021 for assessment years 2022-23 to 2026-27.
The ITAT, by a detailed order, allowed the appeals and set aside the cancellation, holding that the CIT(E) exceeded its jurisdiction by cancelling registration on grounds that did not constitute “specified violations” under the Explanation to Section 12AB(4). This commentary analyzes the legal reasoning and the distinction drawn between cancellation jurisdiction and assessment jurisdiction.
Facts
The assessee-society had deposited cash of approximately Rs.14.82 Crores in its bank accounts, which triggered examination by the CIT(E). A show-cause notice dated 31.10.2025 proposed cancellation of the registration on several grounds. The principal objections raised by the CIT(E) were:
– A lease agreement dated 01.04.2021 for two flats at an annual rent of Rs.10 Lacs was entered into with the Vice Chairman of the trust, but the deed was not registered, allegedly to evade stamp duty.
– The assessee earned income by letting out its premises for conducting competitive examinations and for installing mobile towers. The CIT(E) found this to be commercial exploitation unrelated to charitable objects.
– Payments made to Omaxe Heights RWA, SPS Hospital, and Lalita Ashram Trust were not supported by sufficient documentary evidence.
– Investment in shares of Bayer Crop Science Ltd. was not a permitted mode of investment under Section 11(5) of the Act.
– The trust earned high profit margins of 36.18%, 30.61% and 37.22% in AYs 2020-21, 2021-22 and 2022-23 respectively, which the CIT(E) regarded as systematic profiteering contrary to the charitable character of education.
– The trust allegedly made false submissions regarding donations and was controlled by family members.
On these findings, the CIT(E) invoked powers under Section 12AB(4) and cancelled the registration.
Reasoning
The core question before the ITAT was whether the CIT(E) could cancel registration under Section 12AB(4) based on the above grounds. The Tribunal examined the statutory scheme and held that cancellation is a drastic power which can be exercised only when one or more “specified violations” as enumerated in the Explanation to Section 12AB(4) are established. The Explanation lists specific situations, including application of income for non-charitable objects, carrying on business not incidental to the objectives, non-genuineness of activities, non-compliance with conditions of registration, and non-compliance with other laws resulting in a final order.
The Tribunal clarified that the CIT(E) had exceeded its jurisdiction by converting ordinary assessment disputes into grounds for cancellation. Issues relating to computation of income, allowability of expenditure, sufficiency of evidence, and application of income are ordinarily matters for the Assessing Officer while framing the Assessment Order. Such issues cannot, by themselves, justify cancellation of registration. This distinction is crucial because cancellation under Section 12AB(4) operates in a different domain from assessment. The Assessing Officer can examine the same facts during assessment proceedings and make appropriate disallowances, but the cancellation of registration has a far more serious consequence, as it affects the very charitable status of the institution.
On the lease deed issue, the Tribunal found that the revenue did not dispute the arrangement itself or the payment of rent. The non-registration of the lease deed was a collateral procedural defect. Since the genuineness of the transaction was not questioned, the defect could not be treated as a specified violation under the Explanation. The Tribunal held that such procedural defects, even if they attract other laws, are not automatically grounds for cancellation unless the non-compliance has attained finality through a direction or decree as required under the statutory provision.
Regarding the letting out of premises for competitive examinations and mobile towers, the Tribunal held that these receipts were incidental to the main educational objects of the society. The income from such activities did not alter the charitable character of the institution because the predominant object remained education. The Tribunal emphasized that generation of surplus from such incidental activities is not prohibited, provided the dominant purpose of the trust is charitable and the surplus is ploughed back into the educational objects. The CIT(E’s) reliance on decisions relating to profiteering was not sufficient because the facts did not establish that the assessee had ceased to carry out educational activities or that the profit motive had replaced the charitable purpose.
With respect to the alleged absence of supporting documents for payments to RWA, SPS Hospital, agricultural expenses, and CSR payments, the Tribunal opined that even if the evidence was insufficient, the proper course was to leave the matter for assessment. The Assessing Officer is fully empowered to verify the genuineness of these expenses and disallow them if found unsubstantiated. Merely because documentation is inadequate, one cannot infer that the activities of the society are not genuine. The Tribunal also rejected the adverse inference drawn from the donation inconsistency, holding that it was not sufficient to warrant cancellation of registration.
The Tribunal also addressed the issue of investments in shares which were not permitted under Section 11(5) of the Act. While such investments may raise compliance questions, they do not necessarily constitute a specified violation justifying cancellation. The remedy lies in the assessment proceedings, where the Assessing Officer can take appropriate action in accordance with law. The same logic applied to the family-controlled administration of the society, which, by itself, does not prove that charitable activities are not being carried out.
In essence, the ITAT held that the findings of the CIT(E) did not establish that the assessee had committed any specified violation under Section 12AB(4). The registration could not be cancelled merely on the basis of suspicious or doubtful items which fall within the jurisdiction of the Assessing Officer during regular assessment. This reasoning is a significant check on the exercise of cancellation powers and provides guidance for future proceedings before the ITAT. The decision also reinforces that the legislature intended Section 12AB(4) to be used only in clear cases of specified violations, not as a substitute for a detailed assessment inquiry. The order is likely to have persuasive value before higher appellate forums, including the High Court, if the revenue chooses to challenge it.
Conclusion
The ITAT’s decision in the case of Shri Om Prakash Bansal Educational & Social Welfare Trust restores the balance between the power of registration cancellation and the power of assessment. By allowing the appeals, the Tribunal has clarified that technical irregularities, evidentiary concerns, and surplus generation do not automatically terminate the charitable character of an educational institution. The cancellation under Section 12AB(4) must be grounded in specified violations as defined by the statute. This case serves as a useful precedent for trusts and institutions facing cancellation proceedings, and equally as a reminder for the tax administration to confine cancellation to its proper statutory scope.